Fashionably late

Online checkout screenshot

Innovative online payment providers are revolutionising the fashion checkout experience, boosting average order value and reducing basket abandonment in the process.

Statistics show that 68% of British shoppers abandon their online basket before completing checkout. This occurs an average of 2.4x per month, rising to 3.8x per month amongst the 16-24 age group(1), with requirements to register for accounts and input card details often blamed. These abandoned baskets represent a massive amount of lost potential revenue for the nation’s online fashion retailers.

A group of innovative payment providers, such a Klarna, PayPal Credit and Amazon Pay are helping to change this by smoothing and shortening the online payment process for customers. These customers – 60m+ of them, in the case of Klarna – are increasingly based in the UK as fashion giants such as ASOS, JD, and Arcadia Group integrate flexible payment functionality into their e-commerce proposition.

Swedish firm, Klarna, offers 3 payment solutions, allowing users to either Pay Now (think: PayPal type processing), Pay Later (up to 30 day interest free grace period) or Slice It (split payments, interest free, over several months). All are facilitated without the need for customers to spend valuable time registering for an account or squinting at their credit cards. Klarna simply needs the user’s delivery address and email to perform a soft credit check, approve the transaction, and invoice the customer.

This is of particular interest to the coveted millennial demographic. Known for purchasing multiple sizes, colours and designs in a single order, they frequently try on, and then return, a large portion of their online purchases. Yet these customers are often restricting the total value of their transactions, in an effort to manage cash flow and avoid tying up precious pounds in to-be-returned stock.

Klarna’s Pay Later function, which lets shoppers return any unwanted items before payment is due, has been particularly valuable to retailers which target young adult consumers. Arcadia has reported an 80%+ increase in AOV on orders facilitated by Klarna versus other payment types, with European merchants on average reporting an increase of 58% in AOV and, crucially, 79% in conversion.

This certainly raises questions for fashion retailers in terms of cost to serve, inventory management, and high return volumes. However, we believe that the increased likelihood of checkout completion, as well as the streamlining and simplification of the process from the customer perspective, mean this is a feature which online fashion retailers may well wish to test (for example, ASOS has offered this service only on purchases made through its app).

With Amazon Pay, PayPal Credit and Silicon Valley-backed start-up, Affirm, all making moves in this space, we expect flexible payment options to become a staple of the online fashion marketplace in the near future.

Alex Cook

1. Klarna/Arcadia